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DEPARTMENT OF AGRICULTURAL ECONOMICS 
UNIVERSITY OF ILLINOIS 
AGRICULTURAL EXPERIMENT STATION 



I L L I N O I 



AGRICULTURAL 



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JANUARY, 1961 
VOLUME 1, NUMBER 1 



ARTICLES IN THIS ISSUE: 

The Market for Domestic Farm Food 

Products Page 1 

Illinois Tax Trends .Page 10 

Inventory Valuation and Farm Income Page 15 

Illinois Farmers Are Getting New 

Neighbors Page 1 9 

Relation Between Moisture Content of Corn Stored 
at Harvest and Subsequent Damage. . . .Page 25 



WITH THIS FIRST ISSUE 

the Department of Agricultural Economics begins pub- 
lication of a new periodical intended to provide timely 
economic information for leaders in agriculture and 
agriculturally related industries as well as for our pro- 
fessional colleagues in agricultural economics. 

Agricultural economics, as a field of study, is con- 
cerned with the business or financial side of farm pro- 
duction, marketing, and processing. It encompasses 
such subject-matter areas as farm and land manage- 
ment, production economics, marketing, rural sociol- 
ogy, prices and statistics, agricultural finance, public 
policy, and agricultural law. The articles in Illinois 
Agricultural Economics will be based on research of 
the Department and will be concerned mainly but not 
exclusively with Illinois. 

Research by members of the Department staff is 
organized around major problem areas and includes 
analyses of all types of agricultural business, starting 
with the farm and extending through the entire struc- 
ture of marketing to the final consumer. These re- 
search efforts directly support our functions of resi- 
dent teaching and extension education. In addition to 
the regular research staff, nearly all of whom also 
teach courses, many graduate students make signifi- 
cant contributions to our research program in the form 
of theses, which are required for advanced degrees. 
From time to time the principal results of some of their 
work will also be published in this periodical. We ex- 
pect Illinois Agricultural Economics to reflect the wide 
subject-matter areas of the Department and to thereby 
promote better understanding on the part of its read- 
ers of the many facets of the agricultural economy of 
Illinois. 

This issue is being sent to you because we believe 
you will be interested in this new development. You 
will also receive the second issue, after which you may 
indicate your interest in receiving it regularly. 

H. G. HALCROW 

Head, Department of Agricultural Economics 



The Market for Domestic Farm Food Products 



T. A. HIERONYMUS 



PROBLEMS OF AGRICULTURAL 
adjustment and agricultural income sup- 
port are closely related to the size, 
present and prospective, of the market 
for farm products. Farmers are busi- 
nessmen, engaged in producing useful 
and desired products for sale. The na- 
ture of agricultural production and the 
adjustments that take place in agricul- 
ture in the times ahead will be basically 
established by the structure of the mar- 
ket for the end products of agriculture. 
Attempts to aid agriculture and agricul- 
tural adjustments must be made within 
the scope of existing markets. 

General Considerations 

The size of the domestic market for 
farm food products is affected by several 
considerations. Each of these plays an 
important role in determining the amount 
of agricultural production that is ab- 
sorbed and the revenue that is gained 
from its sale. 

Population. Population is only one 
of several factors in the total market 
si/c Frequently one hears statements 
that indicate that market size is a precise 
arithmetic function of population — such 
statements as "The human stomach will 
hold only so much." True, we require 
a reasonably constant quantity of food 
in terms of pounds or calories, but a 
given quantity of food does not repre- 
sent a fixed quantity of agriculture. 

At least 70 percent of the cropland 
used to produce food and feed is used 
to produce ievd. This land could, if 
needed, be shifted back to food crops. 
For every seven units of nutrients that 
go into livestock, we get about one back 
for use as human food. Clearly, a shift 



from animal products to crop products 
would enable us to feed several times 
the current population without any in- 
crease in agricultural production. Sim- 
ilarly, a shift from the production of 
food crops to feed crops with an accom- 
panying increase in the consumption of 
livestock products would increase the 
amount of agricultural production used 
per capita. 

Per capita income. As individual 
family incomes increase, food expendi- 
tures also increase. Thus the revenue 
that is realized from the sale of food is 
influenced by per capita income. The 
well-being of agriculture is closely tied 
to the well-being of consumers. 

Taste and preferences. A minimum 
amount of food is essential to the main- 
tenance of life, health, and vigor. But 
the consumption of food in the United 
States — by amount and kind — is far 
in excess of such a minimal level. The 
agricultural industry can sell people only 
what they want to buy. The size of the 
market is importantly affected by the 
preferences of people for food over all of 
the other demands upon their incomes. 
Agriculture must compete, on a prefer- 
ence basis, with all of the other sellers 
of consumer goods. 

The ability of the marketing system 
to supply the market. These notions of 
consumer preference point up the impor- 
tance of evolving a marketing system 
that will fully cater to consumer desires. 

The U.S. marketing system is highly 
developed. The system of transporta- 
tion, processing, preparation, and distri- 
bution is tremendously complex. It 
provides many thousands of kinds of 
food items in every corner of the coun- 
trv at all times. 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



There is need, however, to improve 
the marketing system. There is need to 
improve the quality and standardization 
of products, reduce the costs of market- 
ing through increases in efficiency, and 
continue innovations in processes and 
products. 

The price of the product. If agri- 
culture is to attract consumer expendi- 
tures away from other items to food, its 
products must be priced attractively. In 
spite of the emphasis that should be 
placed on quality, we must recognize that 
we are selling in a very price-conscious 
market. All products are more or less 
competitive in the quest for consumer 
spendable income: apples with oranj 
fruit with meat, food with household ap- 
pliances, clothing with recreation, etc. 

Consumer Expenditures 

As go the developments in the factors 

affecting market size so will also go the 
rate of market expansion during the 
decade ahead. The behavior of consum- 
ers during the postwar period is an im- 
portant indication of their probable 
behavior in the future. 

Total and adjusted expenditures. 
Consumer expenditures for food in- 
creased rapidly during the post-World 



War II period (Figure 1 and Table 1). 
The size of the market increased by more 
than 50 percent — from $45.8 billion to 
$69.9 billion. Projection of this increase 
into the future requires that we be op- 
timistic about the size of the domestic 
market. The factors that caused the in- 
crease during the 1947-1959 period will 
be likely to prevail in the future, so such 
projection appears reasonable Three 
factors were responsible for the increase: 
( 1 ) general inflation, (2) increasing pop- 
ulation, and (3) incrcasin d per 
Capita income. 

To separate these three inflii- the 

expenditures were first adjusted for the 

price of food. The adjusted expenditures 

(total food expenditures divided by in- 
dex of consumer prices for food) are 
shown by the dotted line in Figure 1. 
Thus computed, the incr< amounted 
to $12.4 billion, about one half of the 
lal amount. 

'Idie total food expenditure re then 
adjusted for changes in population. The 

lilt (shown by the ! line in 

ire I) is an approximation of the 
real growth in per capita market - 
during t: !. It is based on two 

sumptions: I 1 > be 
increases were part of the general inlla- 



70 



en 

5 60 

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o 

Q 



50 



CD 



40 



1 



TOTAL CONSUMER 

EXPENDITURES 

FOR FOOD 




EXPENDITURES ADJUSTED 
FOR PRICE CHANGE 



EXPENDITURES ADJUSTED 
FOR PRICE CHANGE AND 
FOR A CONSTANT POPULATION 



1 



1 



1 



1 



I 



I 



1 



I 



1947 '48 49 1950 51 52 '53 '54 '55 56 57 58 59 



Fig. 1. — Total food expenditures and expenditures after adjustments for price 
change and for price change and a constant population of 160 million. (Based on 
USDA data.) 



MARKET FOR DOMESTIC FARM FOOD PRODUCTS 



Table 1. — Some Aspects of Consumer Behavior in the Post-World War II Period 



Year 



Food 
expendi- 
tures 



Dis- 
posable 
personal 
income 



Cost 
of 

living 



Cost 

of 
food 



Popula- 
tion 



Food ex- 
penditures 
adjusted 
for food 
prices 



DPI 

adjusted 
for cost 
of living 



(billion dollars) 

1947 45.8 170.1 

1948 48.2 189.3 

1949 46.4 189.7 

1950 47.4 207.7 

1951 53.4 227.5 

1952 55.8 238.7 

1953 56.6 252.5 

1954 57.7 256.9 

1955 59.2 274.4 

1956 62.2 290.5 

1957 65.2 305.1 

1958 67.4 316.5 

1959 69.9 336.6 



(1947-1949 = 100) 

95.5 95.9 

102.8 104.1 

101.8 100.0 

102.8 101.2 



111. 
113. 
114. 
114. 

114. 
116. 
120. 
123. 
124. 



112.6 
114.6 

112.5 
111.9 

109.7 

110.2 
113.8 
118.8 
116.1 



(million) 

144.0 
146.8 
149.2 
151.6 

154.2 
157.0 
159.6 
162.4 

165.2 
168.0 
171.1 
174.1 
177.1 



(billion dollars) 

47.8 178.1 

46.3 184.1 

46.4 186.3 
46.8 202.0 



47.4 
48.7 
50.3 
51.6 

54.0 
56.4 

57.3 
56.7 
60.2 



205.0 
210.3 
220.7 

225.4 

239.7 
250.0 
253.8 
256.3 
271.0 



Year 



Adjusted food 

expenditures 

per capita 



Adjusted 

DPI per 

capita 



Percent 
adjusted 

values 

spent for 

food 



Food 

expenditures 

adjusted to 

provide a 

1952 dietary 

level 



Food 

expenditures 

adjusted 

for constant 

population of 

160 million 



(dollars) (dollars) (percent) 

1947 331.94 1,236.81 26.8 

1948 315.40 1,254.09 25.1 

1949 310.99 1,248.66 24.9 

1950 308.71 1,332.45 23.2 

1951 307.39 1,329.44 23.1 

1952 310.19 1,339.49 23.2 

1953 315.16 1,382.83 22.8 

1954 317.73 1,387.93 22.9 

1955 326.88 1,450.97 22.5 

1956 335.71 1,488.10 22.6 

1957 334.89 1,483.34 22.6 

1958 325.67 1,472.14 22.1 

1959 339.92 1,530.21 22.2 

Source: Marketing and Transportation Situation and AMS data, USDA. 



(billion dollars) 

46.5 53.1 

50.2 50.1 

48.1 49.8 

48.0 49.4 



54.3 
55.8 
55.0 
55.1 

55.1 
56.2 
59.2 
63.7 
63.3 



49.2 
49.6 
50.4 
50.8 

52.3 
53.7 
53.6 
52.1 
54.4 



lion of the period, food expenditures 

necessarily went up at the same rate as 
food prices; and (2) food expenditures 
increased in direct proportion to the 
increase in population. 

For the years 1947-1951, there was a 
decrease in real market size per capita. 
This decrease was in part the result of 
adjustment from a wartime expenditures 
pattern. I'ecause goods and services 
other than food were scarce during the 
war, money for food was more than 
usually available. This readjustment had 



essentially taken place by 1949 or 1950. 
Since 1950 there has been a gradual and 
persistent increase in real per capita ex- 
penditures for food. 

Income elasticity. Figure 2 shows 
the relationship between disposable real 
income per capita and real food expendi- 
tures per capita during the decade of the 
1950's. Two things are readily apparent: 
First, both income and food expenditures 
rose fairly rapidly and, second, the in- 
crease in income was greater than the 
increase in food expenditures. 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 




92 



REAL FOOD 

EXPENDITURES 

PER CAPITA 



(1950-1959=100) 



_L 



X 



J L 



J — 4- 



1950 51 



52 



53 54 55 56 



57 58 



59 



Fig. 2. — Indexes of income and food ex- 
penditures. (Based on USDA data.) 



Although these data arc useful in esti- 
mating the income elasticity of the de- 
mand for food, they have some limita- 
tions. For example, they do not tafce 
into account the increase in per capita 
production of food. Presumably consum- 
ers react initially in two ways to a 
decrease in food prices. One is to con- 
tinue to eat as the}- have, but at h s 
cost; the other is to improve the quality 
of the food they buy or to improve the 
quality of "mix" of the products they 
buy. The result is probably a short run 
price inelasticity of demand. The E 
ondary effects, or long-run price elas- 
ticity, are uncertain and much argued. 
If, however, the price elasticity of de- 



mand in the short run is less than one. 
then the data tend to understate income 
elasticity of demand. 

From 1950 to 1959, real food expend- 
itures increased 10. 3 percent per capita, 
while real income went up 14.8 percent 
per capita. A crude income elasticity 
+ 0.7 is indicated; that is, food expendi- 
tures increased 70 percent as rapidly as 
consumer incomes. 

Expenditures for constant diet. It 
has not been n< ry for consumers to 

spend such large amounts for food as 
they have been spending. Figure 3 shows 
actual consumer food expenditures to- 
gether with the expenditure that would 
have been n< - try to maintain a diet of 
constant composition. The figures shown 

for food expenditures and diets have 
been equated at 1952 levels. In each j 
previous t<> 1952, ■ nditures were- be- 
low the levels needed to buy a 1952 diet. 
and each year since V'~2 they have 1 

ab<>\ e. 

In 1935 1939 consumers would have 

had t<> Spend $21.1 billion to obtain a 

2 diet. They actually spent $15.3 

billion, or Only 72.? percent as much. In 

1959 consumers spent billion a 

than they would have needed had they 

;i content with 1952 dietary levels. It 

is clear that consumers are willing t«> 



70 



< 60 



o 



O 

_l 

m 



50 - 



40 





TOTAL 


CONSUMER ^^^ 




EXPENDITURES / , 




FOR 


FOOD / S 


— 








9m ^~—--~'^ s 




// 


- ^ 




// 


EXPENDITURES REQUIRED FOR 
A 1952 DIETARY LEVEL 


1 1 1 


I 1 


1 1 1 1 1 1 1 1 



1947 '48 '49 1950 '51 



52 



'53 '54 '55 '56 '57 $8 



59 



Fig. 3. — How total food expenditures and expenditures necessary to maintain a 
diet of a constant composition have risen. 



MARKET FOR DOMESTIC FARM FOOD PRODUCTS 



spend part of their increased income in 
improving the quality of the food they 
buy. In this context, quality improve- 
ment refers to preference rather than to 
nutrition. 

Dietary changes. The increased ex- 
penditures have been made for preferred 
foods. What are these preferred foods? 
The changes in food products that have 
taken place during the past 15 years 
would be a subject in itself. 

The per capita consumption of fruits 
and vegetables has been essentially 
stable. There have been some internal 
shifts, especially from fresh to frozen 
fruits and vegetables. Although postwar 
per capita consumption of fruits and 
vegetables appears to have stabilized, 
there has been a very large increase from 
prewar. Just what this means is not 
clear. It could mean that we are reaching 
a saturation point. But in view of the 
wide differences in consumption by fami- 
lies, this conclusion appears doubtful. A 
more likely view is that the gains are 
being consolidated and that a renewed 
expansion of consumer demand is prob- 
able. 

Per capita consumption of livestock 
and livestock products is continuing to 
expand after a very large increase from 
prewar levels. Within the livestock prod- 
ucts component, the greatest increase is 
in meat. After a dramatic increase from 
prewar levels, per capita egg consump- 
tion has decreased in each year since 
1951. Consumption of dairy products 
other than butter is expanding slowly. 
Whether the markets, per capita, for 
eggs and milk have been saturated or 
whether other factors are to blame is not 
known. Markets do become saturated, 
that is, consumption reaches levels past 
which no more is wanted or can be used. 
For example, the per capita consumption 
of edible fats and oils just cannot be 
increased at any price. On the other 
hand, there is reason to suspect that milk 



is being priced out of markets and that 
the quality of eggs is so low as to dis- 
courage consumption, so there is sub- 
stantial doubt that these markets are 
saturated. 

It is also clear that there is much 
room for expansion of per capita meat 
consumption. New records have been 
established in recent years, and supplies 
have been readily taken up. The per 
capita meat consumption in the United 
States is well below that of several other 
countries. If the time ever comes when 
the meat appetites are satiated in a 
quantity sense, we can turn to quality 
improvement. When we consider the 
willingness with which consumers have 
increased their expenditures for meat, 
and at the same time think of the amount 
of canner cow beef and fat pork that we 
have been able to sell, it becomes clear 
that meat consumption can be expanded. 

Consumption of bread, potatoes, and 
hominy grits declined. As the consump- 
tion of animal products increases, some- 
thing must go. It has been the carbo- 
hydrate foods. 

As consumption shifts from bread and 
potatoes to meat, the per capita intake 
of agricultural products is greatly in- 
creased. This again illustrates the distil- 
lation effect of putting crops through 
animals and shows the absence of a 
direct arithmetic relationship between the 
amounts of agricultural products that 
can be consumed and the numbers of 
people available to consume them. 

Conclusion. During the decade of 
the 1950's, real food expenditures per 
capita increased by more than 1 percent 
per year. During the same decade, popu- 
lation increased by 17 percent, or about 
1.9 percent per year. It thus appears 
that the increase in size of the domestic 
market for food was of the general order 
of 3 percent per year. There is a rap- 
idly expanding market for food. It does 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



not seem unreasonable to project about 
this same rate of expansion into the dec- 
ade of the 1960's. 

Marketing Margins 

If the market for farm food products 
was increasing at a rate of 3 percent per 
year, why has a severe agricultural in- 
come problem developed ? The answer 
lies in the relative adjustments of the 
prices of agricultural commodities and 
marketing margins to inflation. 

The margin structure. One of the 

things we frequently hear is thai in- 
creased consumer expenditures for food 
do not increase the demand for farm 
products, because these increased con- 
sumer expenditures are absorbed by in- 
creased marketing costs. Another is that 
the increased expenditures for food are 
not really for food at all, but are actually 
for increased marketing services for 
built-in maid service. That increased ex- 
penditures for food have been absorbed 
by increased marketing charges is partly 
true. That increased expenditures have 
been for services rather than food is not 
true. 

Marketing charges and farm receipts 
divide up consumer expenditures. This 
division is as follows: 



1. Consumers spend a given amount 
of money for a given amount, kind. 
and quality of food. This amount 
is independent of the division of 
expenditures between marketing 
charges and farm receipts. 

2. Marketing charges are based on 
costs, and so an amount generally 
approximating the cost of marl.' 
ing is taken out of consumer ex- 
penditun 

3. The balance that is left is paid to 
farmers for the raw foodstuffs. 
Farmers are the residual recipients, 

taking what is left over. 

Relative changes. Sometimes it is 
advantageous t" be the residual recipient, 
and sometimes it is not. Figure 4 sh< 

retail food COStS, total marketing bill, and 

farm value of foods produced from do- 
mestic farm products from 1935 through 

1959. 

For the period 1935 1948, it was ad- 
vantageous t" be tl -dual claimant. 
Consumer expenditures for food in- 
creased at the full general inflationary 
rate of the economy during the war and 

'war period. Marketing costs arc 
stick)-, and 50 they increased more 
slowly. Such things as transportation 
rates, rentals, utilities, and even w, 



60 



50 - 




/ 

FARM VALUE 



'51 



'59 



Fig. 4. — Retail cost of domestic food production, marketing bill, and farm value. 
(Based on USDA data.) 



MARKET FOR DOMESTIC FARM FOOD PRODUCTS 



rates usually lag during inflationary pe- 
riods. Consequently the residual left for 
farmers increased faster than the gen- 
eral economic expansion and inflation. 
For example, consumer expenditures in- 
creased 191 percent from 1939 to 1948, 
while marketing charges increased only 
141 percent. The resultant increase in 
farm value was 269 percent. This situa- 
tion was too good to last. Like the tor- 
toise, marketing charges began to catch 
up with the hare of inflation. From 1948 
to 1959, consumer expenditures went up 
36 percent, marketing charges 68 per- 
cent, and farm value only 3 percent. 

If the rate of increase in marketing 
charges decreases until it becomes the 
same as the rate of increase in consumer 
expenditures, farm value will increase 
at the same rate as consumer expendi- 
tures. Thus the rate of increase in mar- 
keting charges is of particular impor- 
tance at the present time. 

Component costs. We can learn 
something about the various component 
costs of marketing (hourly labor rates, 



transportation rates, and other cost 
rates) and unit marketing charges by 
looking at Figure 5. The outstanding 
thing about this picture is that all of the 
components have increased faster than 
the unit charges. Had input costs re- 
mained constant, unit charges would have 
decreased. This change must have been 
the result of increasing efficiency or a 
change in the amount of marketing serv- 
ice, or both. If there was an increase in 
marketing service — built-in maid serv- 
ice — it has been more than offset by 
increased efficiency. There are both in- 
creases and decreases in the amount of 
marketing service. There is more pre- 
preparation and packaging, but these cut 
down the amount of retailing. They also 
cut waste and hence increase efficiency. 
Either directly or indirectly, labor 
makes up most of the freight and other 
marketing costs. Laborers are consum- 
ers, and vice versa. It is difficult for me 
to see how marketing wage scales can 
continue to gain on other wage scales 
and how wage rates in general can rise 



170 



160 



150 - 



o 




o 




II 


140 


o 




5T 




en 


130 


N- 




*r 




(T) 






120 


\- 




Z 




UJ 

o 


no 


or 




UJ 




o_ 





100 



90 



80 



HOURLY EARNINGS 
RAILROAD RATES 
OTHER COSTS 
UNIT CHARGES 




_L 



1 



1 



1 



1 



1947 '48 '49 '50 '51 "52 '53 '54 '55 '56 '57 



Fig. 5. — Indexes of component marketing costs and unit charges. 
USDA data.) 



'58 '59 
(Based on 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



without the increase being translated, at 
least in part, into consumer expenditures 
for food. It follows, therefore, that in 
the future, consumer expenditures and 
unit marketing charges will increase at 
more nearly the same proportionate rate, 
leaving room for increases in farm value 
more nearly in line with increases in 
consumer expenditures. Agriculture may 
have weathered this phase of adjustment. 

Effects on farm income. The impact 
of increased unit marketing charges is 
illustrated in Table 2 and Figure 6, 
which show the actual farm value and 
the farm value that would have existed 
had unit marketing charges increased at 
the same rate as consumer expenditures 
from the 1947-1949 period to 1959. This 
substantial difference, had it existed. 
would have been largely translated into 
net farm income. If net farm income 
had been $6.3 billion larger than it was 
in 1959, it is doubtful that we would be 
hearing so much about the farm income 
problem in 1960. 

By this process a plausible case can be 
developed to show that the farm income 
problems of the past decade are due to 
inflation catching up in the area of mar- 



Table 2. — Actual Farm Value of Consumer Ex- 
penditures for Domestic Farm Food Products Bought 
by Civilians, Compared With Farm Value Had the 
Marketing Bill Increased at the Same Rate as Con- 
sumer Expenditures From the 1947-49 Averages 



Year 


Actual 
farm 
value 


Compi 
farm 
value 


1947 


(billion 

18 : 


'loll. 

17 7 


1948 


19 5 




1949 

1950 

1951 

1952 


16.9 

17.6 

20 o 

1 9 9 



18 
20 
21 6 


1955. . . . 


19 


21 : 


1955 

1956 

1957 

195S 

1959 


IS 

is ; 

19 

20 
19 


21 

7 
23 7 
U 7 

; 9 
1 







keting charges and to the wage-price 
inflation rather than to overproduction. 
Most importantly, what it means 

that in the decade ahead there will 1 
standingly better Opportunities for in- 
creasing farm income than there have 
H ill tin- le just ended. 

Supply Policy 

None of this dis the 

effect of changes in the supply of agri- 



27 
25 



w 23h 
< 



21 - 



COMPUTED FARM VALUE 

(if marketing charges had 
increased at the rate of 
consumer expenditures) 






ACTUAL FARM VALUE OF CONSUMER 
EXPENDITURES FOR FOOD 



1 



1 



_L 



1 



1 



1. 



1 



1 



-L 



i 



J. 



1947 "48 '49 1950 '51 '52 '53 '54 '55 '56 '57 '58 '59 



Fig. 6. — Farm value of consumer expenditures for food 
on basis of smaller increases in marketing charges. 



actual and computed 



MARKET FOR DOMESTIC FARM FOOD PRODUCTS 



cultural products on agricultural prices 
and incomes. There are, however, impli- 
cations for supply policy in market size 
and growth. A restrictive supply policy 
would have adverse effects on market 
growth, hence on the size of the farming 
industry. 

If agriculture raises the prices of its 
end products in relation to the prices of 
other consumer items, consumer expend- 
itures will be diverted elsewhere. The 
result will be a net revenue loss to agri- 
culture. Thus in the long run, a relative 
increase in price tends to stop the expan- 
sion, in a quantity sense, in size of the 
market for agricultural products, and to 
stop the expansion of agricultural pro- 
duction. Thus the size of the agricultural 
plant tends to become fixed. In a situa- 
tion in w r hich one of the most serious 
problems is the underemployment of re- 
sources, people in particular, restriction 
of supply further complicates the adjust- 
ment problem. Thus one of the key con- 
siderations in adjustment is maximiza- 
tion of market size. This cannot be 
accomplished with a high-price policy. 

A restrictive supply policy would re- 
tard market development. Market devel- 
opment is built on quality improvement. 
Quality improves faster when supply is 
not restricted. Under any supply-control 
conditions, competition among producers 
is restricted; and so the likelihood of 
quality improvement is reduced. Fur- 
ther, under any supply-control condi- 
tions, there is a tendency to freeze the 
relative production of the various agri- 
cultural commodities. Tn so far as the 
wrong commodities are produced, the 
market will not expand. If it were pos- 
sible lo effectively restrict supply, and if 
such restriction succeeded in increasing 
incomes to satisfactory levels, there 
would be less incentive to improve qual- 
ity than there is under the competitive 
conditions that generally ovist. 



Some illustrations may be in order: 
One of the most remarkable examples of 
growth during the postwar period is the 
broiler industry. It was built on quality 
and an advancing technology. I put a 
simple proposition: The market for 
chicken meat would be much smaller to- 
day had production patterns been frozen 
at the levels of 20 years ago. The well- 
exercised, expensive, barnyard chicken 
of that era would not attract much con- 
sumer spending today. The money would 
be going elsewhere, and not necessarily 
to other food items. 

The soybean industry is another ex- 
ample of remarkable growth in recent 
times. This product has been continu- 
ously priced to move and has found ex- 
panded markets at a phenomenal rate. 
Other fats and oils, those of foreign 
origin in particular, have been displaced. 
Livestock feeding efficiency, especially 
for poultry, has been improved through 
the use of soybean meal. At one time 
soybean oil and soybean meal were re- 
garded as inferior products. Their qual- 
ity has been greatly improved, and they 
have proved their quality. The simple 
proposition here is that these vast new 
outlets for corn-belt agriculture would 
not have been opened up if effective sup- 
ply control had been in operation. 

The development of market outlets 
for the large quantities of feed grains 
that are being produced and that have 
accumulated rests heavily on the attrac- 
tiveness of pork to consumers. This is a 
weak foundation. The quality of pork is 
low. One of the key agricultural adjust- 
ment problems is to improve pork qual- 
ity. A price of $18 or $20 for hogs does 
not give much incentive for invention, of 
which necessity is the mother. 

The market effects of supply control 
must not be overlooked in agricultural 
policy discussions. 



10 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



Illinois Tax Trends 



N. G. P. KRAUSZ 



GOVERNMENT BENEFITS, ONCE 
they have become established and people 
have become used to them and depend 
on them, are quite difficult to remove or 
cut back. Each new addition to the struc- 
ture thus tends to become a permanent 
fixture, and it is not difficult to explain 
why. The desire to continue a program 
is very real and personal to those who 
are receiving its benefits. If their num- 
bers are sufficient, it may be impossible 
to bring about even minor changes. The 
desire of economy-minded persons to re- 
duce taxes, however, is not nearly so 
immediate and pressing. In oilier words, 
those who are directly affected by loss of 
a government program have more al 
stake and are more likely to voice tl 
protests than are those who merely wish 
to see a general reduction in taxes. 

In addition, the federal government 
through federal-aid programs, actively 
encourages stales to tax for certain pur- 
poses by guaranteeing "free" federal 
money on a matching basis. Programs 
for old-age assistance and aid to depend- 
ent children are examples of such assist- 
ance. Such programs are hard for state 
legislatures to resist, because some of 
those federal funds were obtained from 
taxes collected within the state, and this 
represents a way for the state to recover 
some of that money. If the state dues 
not wish to take its share, it is usually 
allocated to another state that is willing 
to match dollars. 

The trend in state spending has been 
a steady increase during the postwar pe- 
riod. Although many persons appear to 
favor government economy, the}- re\ erse 
their position when the projects from 
which they benefit are endangered. There 
is no real evidence of any substantial 
decrease in government spending in the 



near future. On the contrary, most signs 
seem to indicate that, if there is to be any 
change in spending, it will be upward. 

Population Changes Causing Greater 
Revenue Needs 

The population of Illinois is increas 
ing at the rate of 1.7 percent per y< 
More governmental services ar< 
manded, and there is a lag between this 

demand and treasury receipts from tl; 
new citi/ens. 'fh<- following figures show 
how Illinois population has grown and 

d to -row: 

I ■■ it I fader 1st 

all is 64 and 

Year ag* years yean old 

(in t housands) 

1950. ... 8,712 2,40* 

Percenl of total 27.6 

loss 0,301 2,907 5,532 

Percenl of total 11.2 >.5 

I960 10,300 1,502 5,789 I ,0 

Percenl of total J4.0 2 *>.S 

; 11.200 6,149 1 ,154 

1'. n i at <>f n.tal M '> 10.3 

L970 12,300 ... 4,26* L0 1 , 

Percent of total $4.7 -8 10.5 

Of importance from a taxpayt 
viewpoint is the increasing percentage of 
school-aged and older persons. Both of 

iups require additional state 
sistance, and this means, of con: Idi- 

tional taxe The following tabulation 
shows th jrowth, for example, 

in the proportion of the Illinois popula- 
tion under 18 years old. 

Percent of 
Preschool Srhool age population 
Year (under ; 5 to 1 under 18 

(in thousands) 

1050 1,564 27 6 

1051 006 1,612 28.8 

1052 005 1,710 20 

1053 026 1,707 30 

1054 047 1,867 JO 

1955 970 1,935 31 

1056 1,001 _\0<1 



ILLINOIS TAX TRENDS 



11 



Illinois Tax Burden 
and Taxpaying Ability 

The per capita burden of state and 
local taxes in Illinois is near the national 
average. In 1957, for example, Illinois 
state and local expenditures per capita 
were $233 compared with the national 
average of $242. The disparity in actual 
tax burdens is greater than these figures 
would indicate because Illinois is 
wealthier than most states. 

As the figures below indicate, Illinois 
is spending slightly less than the national 
average in total expenditures and in al- 
most every separate expenditure within 

table. 

Illinois All states 
Function (1957) (1957) 

Education $ 79.79 $ 84.50 

Highways 44.89 46.62 

Public welfare 16.70 20.31 

Hospitals and health 18.16 19.14 

Police and fire 14.46 13.77 

Natural resources 3.12 6.16 

Sewage disposal, sanitation 11.43 8.87 

General control 9.28 10 . 29 

Miscellaneous 35.12 31.99 

All general expenditures $232.95 $241.65 

Source: U. S. Census Bureau, State and Local 
Government Finances in 1957 (1958). 

Although Illinois collects less taxes 
from its citizens than most states, more 
taxable dollars are available in Illinois 
than in most states. Illinois per capita 
personal income has been well above the 
national average, as shown by the next 

that total. 

United States Illinois 



Year 



Total Per Total Per 

capita capita 

(millions) (millions) 

1948 $207,414 $1,420 $15,472 $1,809 

1950 225,473 1,491 15,984 1,827 

1952..... 269,050 1,727 18,579 2,085 

1954 285,339 1,770 19,751 2,156 

1957 345,272 2,027 23,579 2,447 

Sources: 1948-1953, U. S. Department of Corn- 
merce. Personal income by states since 1929. 1956. 
1954-195 7, U. S. Department of Commerce. Survey of 
current business. August, 1958. 

Another indication that Illinois' tax- 
paying ability is high is the large per- 
centage of the federal tax burden that 



is borne by Illinois citizens and corpora- 
tions. The estimated Illinois per capita 
rate for 1960 is exceeded by only four 
states: Delaware, Connecticut, New 
York, and Nevada. Federal taxes in 
Illinois for this year will be $543 per 
capita. The average for all the other 
states will be only $424 per capita. 

It is estimated that the federal tax 
burden in 1960 will be allocated as fol- 
lows : 

Each bil- 
lion in 
federal 
spending 
Per adds to 

capita Total state 
Rank State rate amount burden 

(millions) 

1 Delaware $958 $ 435 $ 6 

2 Connecticut 717 1,660 22 

3 New York 622 10,091 137 

4 Nevada 581 155 2 

5 ILLINOIS 543 5,370 73 

6 New Jersey 541 3,113 42 

7 Massachusetts.. 536 2,604 35 

8 California 528 7,575 103 

9 Ohio 486 4,544 62 

10 Pennsylvania... 479 5,318 72 

11 Rhode Island... 472 413 6 

12 Maryland 469 1,387 19 

13 Michigan 467 3,673 50 

National 

average 424 

Total federal 

taxes, 1960 73,762 a 

a A higher defense budget may increase this figure. 

Basis and Character of Revenue 

To be satisfactory any tax system 
must meet certain requirements of the 
taxpayer and of the government. 

The taxpayer is interested in a just 
system of taxation. He enjoys the serv- 
ices of government, but he wishes to pay 
only his share. To determine the basis 
for his share is difficult. Most people 
would agree that ability to pay is a satis- 
factory basis. But how can we measure 
ability? The income tax is based upon 
ability to pay, but what size of income 
should be taxed, what rates of tax should 
be applied, and what exemptions, if any, 



12 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



should be provided? The general prop- 
erty tax probably was relatively just on 
the basis of ability when most wealth 
was in land and nearly all of the people 
were farmers. At present, however, 
ownership of property, especially real 
estate, does not always indicate ability 
to pay taxes. Many kinds of property are 
not taxed at present because they are 
"intangible" forms of properly, such as 
stocks, bonds, mortgages, and similar 
items. 

Another basis for a taxation system is 
to adjust the taxes paid by an individual 
to the benefits he gets from taxes. The 
motor fuel tax approaches this basis 
since the more fuel purchased, the more 
tax paid. 

From the standpoint of government 
administration, the tax system must meet 
seven standards: 

1. It must produce revenue. That 
is, it must provide enough funds to 
pay for the services which the 
people need. 

2. It must be diversified in order to 
tap the many forms which wraith 
may take. 

3. It must be flexible enough to pro- 
vide quickly for needed changes in 
income by adjusting the rates 
rather than by remaking the sys- 
tem. 

4. It must be worked out to mini- 
mize tax evasion through which 
some citizens may avoid meeting 

their share of responsibility. 

5. It must be simple in order to be 
readily understood. 

6. It must be economical. The cost 
of collection must not take too 

• great a percentage of the amount 
collected. 

7. It should in peaceful times per- 
mit essential economic growth 
and expansion. 



Taxes are sometimes classified ac- 
cording to the tax base on which they 
fall. The following is one such grouping. 

Gross income — electrical energy tax, 
local telephone service tax, occupa- 
tional excise tax. 

Net earnings — income tax. 

Production — severance tax, value 
added or value increment tax. 

Wealth — personal property tax, real 
property tax. estate and gift 1. 

Consumption — amusement tax, occu- 
pational excise lax. US€ tax. motor- 
fuel tax, liquor tax. tobacco tax. 

Privilege, license, and franchise — in- 
heritance tax, occupational i • tax, 
stock transfer tax, amusement tax, 
motor-fuel tax, liquor tax, tobacco 

tax. 

Possible New or Substituted Sources 
of Revenue in Illinois 

The following are merely some of the 
many proposals advanced for consid< 
tion by the aext [llinoii 
sembly. Seme could !»■ 1 without 

constitutional change il 

quire amendment of th» tution and 

referendum approval by the v 

A few proposals would not bring in 

ge additional amounts of revenue, but 
would plug existing loopholes and elim- 
inate unfair exemptions. Others would 

vide substantial additional revenue 
and might permit better distribution of 
the total tax burden; for example, they 
would ease such apparent inequitable 
burdens as the high property taxes | 
by Illinois farmers. 

A. Impose a state income tax, either 
flat rate or graduated. As state reve- 
nue needs have increased, state income- 
taxes have become increasingly popular 
and have been enacted in 34 states. Tl - 
taxes bring in large amounts of revenue, 
are easy to collect, and require relatively 



ILLINOIS TAX TRENDS 



13 



small administrative expense. The state 
income tax, for example, produces 60 
percent of state revenues in Oregon, 50 
percent in New York, and 47 percent in 
Wisconsin. Because of the need to file 
accurate federal returns, which are avail- 
able for state inspection, tax evasion is 
difficult. Since state taxes are deductible 
for federal income tax purposes, the 
additional burden to state taxpayers 
would be less than the amount of rev- 
enue produced. 1 It is estimated that a 
rate graduated from 2 to 7 percent, with 
a personal exemption of $2,500 and an 
additional exemption of $400 for each 
dependent, would produce over $400 mil- 
lion annually from individuals and cor- 
porations in Illinois. 

A flat-rate income tax could probably 
be enacted now with no constitutional 
amendment. It is presumed that a flat- 
rate tax would produce less revenue than 
a graduated tax, and would have the 
same regressive feature that is criticized 
in the various excises, but this is by no 
means certain, provided exemptions are 
allowed. Without reasonable exemptions 
the burden would be heaviest on the 
lower-income groups, who can least af- 
ford it. Estimates are that a flat-rate tax 
of 2 percent with individual exemptions 
of $700 would produce $330 million a 
year. 

In recent years a number of groups in 
Illinois have come forward in support 
of a state income tax. Some farmer 
groups in particular have come to favor 
the imposition of such a tax. Their tax 
load under it would be relatively light, 
since the average net income per Illinois 
farm is $3,000 or less. 

Income tax revenues could result in a 
lightening of the property tax burden if 
part of the revenue were used for local 

1 See page 102-106 in "Financing Illinois 
Government" by Glenn W. Fisher, University 
of Illinois Press, Urbana, 1960. 



schools and the property tax levy were 
reduced proportionately. 

B. Broaden the base of or increase 
the sales tax. High productivity of 
revenues and ease of collection have 
made sales taxes very popular at the 
state level, particularly in states like 
Illinois that have constitutional barriers 
to a graduated income tax. At present 
the Illinois sales and use taxes are the 
most productive source of revenue for 
the state, accounting for about 40 per- 
cent of total state collections. An in- 
crease of Yz percent in the present rate 
would bring in an additional $70 million 
in annual revenue, it is estimated. 

Sales taxes, however, are heavily re- 
gressive on low-income groups in gen- 
eral, and upon the farm population in 
particular. In Minnesota, for example, 
it has been found that a farmer pays 50 
percent more sales tax than a comparable 
urban resident because so much of his 
productive equipment is taxed. There- 
fore it would seem desirable, in terms of 
balance and diversification, for Illinois 
to keep the present rate and to expand 
the base of the sales tax. 

Because of the wording of the statute 
and judicial decisions covering the sales 
tax, many exemptions exist. The words 
"tangible personal property" and "for 
use and consumption" have been in- 
terpreted to exclude sales that include an 
element of personal service, such as 
custom tailoring, machinery made to 
special order, newspapers and magazines, 
and certain made-to-order household 
furnishings. In addition, sales of per- 
sonal property to contractors or to those 
in the service occupations are nontax- 
able. In short, although the Illinois 
statute is broadly phrased, it has been 
interpreted very narrowly. 

C. Increase the rates on existing ex- 
cise taxes. Like the sales tax, excise 



14 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



taxes are regressive, particularly for 
such products as cigarettes, which are 
used by a large percentage of the popu- 
lation. In the case of motor fuel, where 
the revenue is used only for road ex- 
penditures, the regressiveness of the tax 
may be justified because the driver is in 
effect taxed on the amount of use of the 
highways. 

To produce any substantial increase 
in revenues, a number of excises would 
have to be increased. Increases on 
liquor and cigarettes were imposed in 
1959, but Illinois Still is substantially 
below the rates in some state-. 

D. Eliminate the capital stock tax 
and the bank share tax and substitute 
a flat-rate corporation franchise tax. 
Illinois corporations and other corpora- 
tions doing business in Illinois are singu- 
larly fortunate from a state tax view- 
point, for they pay very few taxes in 
addition to the property tax. In fact, 
one authority, II. K. Allen, Professor of 
Economics at the University of Illinois, 
refers to "the relatively light burden of 
state taxes on most classes of business" 
in Illinois. This situation Is particularly 
discomforting because business taxes can 
be passed on in part to nonresidents. 

The situation could be remedied by 
abolishing such outmoded taxes as the 
capital stock tax and the bank share tax 
and substituting a Hat-rate franchise tax 
that would be applicable to all corpora- 
tions and measured by net income. In 
light of recent United States Supreme 
Court decisions, it is now also possible 
for Illinois to tax corporations in inter- 
state commerce on the portion of their 
business that is attributable to Illinois. 

An Illinois corporate franchise tax 
would produce a considerable amount 
of revenue. Compared with the $10 mil- 
lion that is now produced by the capital 
stock and bank share taxes, a franchise 
tax, at the rate of 4 percent on net re- 



ceipts, would bring in more than $100 
million. Because such taxes are de- 
ductible for federal corporate income 
tax purposes, the additional burden would 
be only half of the amount of state taxe 
corporations actually paid. 

E. Other taxes. Other possibilities 
include a severance tax, a value-incre 
ment tax, an insurance tax, a motel and 
hotel tax, and numerous class type ta 

However, some of these do not meet 

the tests of a good tax and the class 
taxed often is too small to produce a 
substantial revenue. Yet other states do 

impose such taxes and the) should not 

be discarded for use in Illinois until a 
.study has been made of revenue needs 

and how each tax measures Up to the 
standards listed in the preceding dis 

sion "Basis and Character of Reveni 

The Property Tax Problem 

This tax is maldistributed in relation 

to income and is not applied equitably to 
intangible wealth. These ob- 

jections, but a good substitute tax has 
not been found, with the possible 
don of the income tax. It would tal 
substantia] rate to replace the property 

tax on which well Over a billion dollars 

is collected each year. B< •■ -■ th< fed- 
eral income tax imposes such heavy 
burdens, we shy away from a similar 
state tax. Much of this fear might be 
abated, however, if the Illinois constitu- 
tion were amended to limit the rate and 
to set forth minimum rial and 

pendents' exemptions. 

A constitutional amendment permit- 
ting personal property to be classified in 
such a way that it may be I at 

different percentages of value is another 
proposal that has been presented to the 
General Assembly. In those states in 
which this has been done, the personal 
property tax assessment has impro\ 



INVENTORY VALUATION AND FARM INCOME 



15 



But avoidance of the property tax is still 
a problem in these states, so the solution 
is at best a partial one. 

It appears that a substitute for the 
personal property tax is the best answer. 
(This, too, would require constitutional 
amendment.) Revenue lost from the 
personal property tax on vehicles could 
be replaced by a vehicle registration fee. 
A corporate franchise tax could be sub- 
stituted for the capital stock tax. Any 



additional loss could be balanced by a 
general tax based on net income. 

It is true that such substitutions would 
disrupt existing rate limits and debt 
limits. However, the fairer and more 
productive tax system that should result 
ought to outweigh these temporary in- 
conveniences. In view of the future 
benefits to the citizens of Illinois, the 
ingenuity of our lawmakers should be 
able to surmount these obstacles. 



Inventory Valuation and Farm Income 



WILLIAM A. TINSLEY 



THIS ARTICLE IS CONCERNED 
with methods of inventory valuation and 
the effects of these methods upon esti- 
mates of aggregate farm income. Choice 
of an appropriate method of inventory 
valuation is also important in compari- 
sons of the economic aspects of farming 
systems, in particular, comparisons in- 
volving year-to-year fluctuations in in- 
come. The income estimates of interest 
are those developed by the Agricultural 
Marketing Service for measuring total 
net farm income. Total net farm income 
differs from its counterpart realized net 
income in that it includes a value for 
inventory change. Realized net income 
is derived by subtracting total farm pro- 
duction expenses from realized gross 
farm income. Realized gross farm in- 
come includes the value of farm prod- 
ucts sold or used in the farm home 
during the year, plus government pay- 
ments to farmers, and the rental value 
of farm dwellings. Farm production ex- 
penses include depreciation charges for 

! A more complete treatment of this topic 
is presented in "Farm Inventory Valuation 
and Estimates of Aggregate Farm Income." 
unpublished Master's thesis, University of Illi- 
nois, I960. 



farm buildings and equipment as well as 
cash operating expenses. 

Methods of Inventory Valuation 

Three methods have historically been 
widely used to value farm inventories — 
the accrual method, the year-end meth- 
ods, and the average-price method. 

The accrual method requires the be- 
ginning inventory to be valued at the 
price prevailing at the beginning of the 
year and the ending inventory to be 
valued at the end-of-year price. This 
valuation method has been used exten- 
sively by farmers who utilize the accrual 
basis of tax computation and in most 
farm records in which measures of in- 
ventory change are desired. 

The year-end method assumes no 
change in inventory prices between the 
beginning and ending inventory and uses 
the end-of-year price for valuation of 
both beginning and ending inventories. 
This method has in the past been used 
by the Agricultural Marketing Service in 
its "Total Net Farm Income" series and 
also by the Agricultural Research Serv- 
ice in its published farm income data. 

However, the AMS now uses another 



16 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



valuation procedure — the average-price 
method in which an average price is used 
to value both inventories. 2 For grain 
inventories, the average sale price of the 
particular grain during the year is used; 
for livestock, the average of the begin- 
ning and end-of-year prices is used. Like 
the year-end method, the average-price 
method does not stipulate any price 
differences between the beginning and 
ending inventories. The accrual method 
does. This lack of price variation is 
consistent with an objective of economic 
accounting (as opposed to business ac- 
counting), where only quantity changes 
are to be shown in the inventory-change 
value. 3 

Differences in Farm Income Estimates 
Due to Method of Inventory Valuation 

Given these three methods of inven- 
tory valuation, we are interested in not- 
ing the yearly variations in total net 
farm income indicated by each of them. 
A comparison of the accrual and year- 
end methods shows that in periods of 
rising prices (all prices of inventory 
items increasing) the accrual method 
will always indicate a higher income than 
the year-end method. Conversely, in 
periods of falling prices, the year-end 
method indicates a higher income. 

If we compare the accrual method and 
the average-price method, again assum- 
ing that all inventory prices move in the 
same direction, the accrual method re- 
sults in a larger positive or smaller 
negative value when prices are rising. 
During falling prices the average-price 
method generates larger positive inven- 
tory changes than the accrual method. 
When we compare the year-end 

2 Agricultural Marketing Service, U. S. De- 
partment of Agriculture. The Farm Income 
Situation No. 155, pages 25-27. 1955. 

8 Bassie, V Lewis. Economic Forecasting, 
page 226. New York, McGraw-Hill. 1958. 



method and the average-price method. 
we rind that the relative year-to-year 
changes are dependent upon both pri< 
and quantities and not upon price alone 
as was the case in previous comparisons. 

Importance of Method Depends 
on Type of Farm 

The difference that results from using 

the various inventory valuation methods 
may he illustrated by actual inventory 
changes computed by the three methods 
and by variations among the methods in 
respect to given ; and also to the 

total income over a period of years. In 
this more complicated context, it is p 

sible to note the importance of inventory 

change relative t<i realized farm in 

as well as the differences in inventory 

change generated by use of the valuation 

methods. In order t< i 

elhuts. total net farm income lign: 

have beet omputed from data taken 
from 1 "SI ).\ bulletii 

- and returns for commen i;il 
famil; rated farms ed by 

type and si/e for tic 

It was not possible to compute the vali* 

for the a\ method from t 

data. However, inventory-change figun 

from the average price method :]i\ 

he somewhat similar to those from i' 
year-end method, which wen omput< 
and compared with ti f the accrual 

method. 

Six U. S. farming area- were chosen 
tor the comparis 

the importance of choice of inventory 
methods, the difference in values of in- 
ntory changes as computed by the two 
methods (accrual and year-end) may be 
expressed as a percent of the realized 
net income. The realized net income 
figure is, of course, not affected by the 
way in which inventories are value 
We find that this measure varies from 
area to area. The following summary 



INVENTORY VALUATION AND FARM INCOME 



17 



shows the average of 15 years of the 
absolute differences between the results 
of the two methods expressed as a per- 
centage of the noninventory elements of 
total net farm income. 

Cotton, black prairie, Texas 10.1 ^c 

Winter wheat, southern plains. . .13.6% 

Cash grain, corn belt 18.6 r c 

Hog — beef fattening, corn belt. .20,1 % 

Dairy, central northeast 25.1% 

Intermountain cattle ranches 80.2% 

Since these are averages, they obscure 
some of the marked differences in the 
calculated change in inventory value that 
occur in years of substantial price 
changes. For example, on cash-grain 
farms in the corn belt in 1947, the differ- 
ence between methods in the values of 
the inventory expressed as a percent of 
the noninventory elements of income was 
54 percent. Inferences regarding the 
well-being of farmers in certain years 
certainly depended on the choice of an 
inventory-valuation method. 

Obviously the importance of inven- 
tory change and therefore the importance 
of differences among methods vary both 
with farming areas and with the particu- 
lar time period considered. The impor- 
tance of the change figure depends on 
size of inventories relative to realized net 
farm income, the size of inventories 
held at beginning and end of year, price 
variation during the inventory period. 
and assortment of inventory items. 

The empirical data show that for a 
number of years and for most of the 
farming areas, there was an important 
difference in total net farm income, de- 
pending on whether the accrual or year- 
end method was used. In 31 observations 
out of 90, the difference expressed as a 
percent of realized net income was 
greater than 25 percent. However, when 
the total net farm income figures gen- 
erated by the two methods were summed 



for the 15 years involved, the differences 

between the means were not significant 
at the 1 -percent level. Although there 
are large differences between the two 
methods in individual years, apparently 
these differences tend to cancel over a 
period of years. 

Relation of Inventory Value 
to Actual Selling Price 

If inventory-change values are con- 
sidered as elements of farm income, then 
it might be asked if the prices assigned 
to inventories by the three inventory 
methods bear any consistent relationship 
to the ultimate selling prices of those 
inventories. To shed some light on this 
question, inventory data concerning three 
commodities — corn, wheat, and soy- 
beans — ■ were taken from Illinois Agri- 
cultural Statistics. The rlow of these 
inventories to market was traced, and 
the actual sales values of the inventories 
were compared with the inventory prices 
established by the three valuation meth- 
ods. The results of 13 vears involving 
the three grains show that a beginning- 
of-the-year price (accrual method) came 
closest to valuing the beginning inven- 
tory at its eventual sales price 13 times 
out of 39. the average price was closest 
14 times out of 39, and the year-end 
price 12 times out of 39. Ending inven- 
tories are priced only two ways by the 
three inventory-valuation methods. For 
ending inventories the average price was 
•. r 22 years out of 39 and the year- 
end price was closer during the other \7 
years. No one method provided con- 
sistent forecasts of the eventual sales 
value of inventories. 

Choice of Method Depends on User 

The use of inventory valuations in 

farm income estimates poses a funda- 
mental problem — that of valuation it- 



18 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



self. One accountant refers to the 
valuation problem as the "accountant's 
Achilles heel." 4 He points out the elu- 
sive nature of "value" and the need to 
use a valuation as a substitute for value 
and offers some criteria with which to 
appraise valuation methods. He says, "A 
whole series of valuations may be used 
in accounting for economic events to 
furnish information to those concerned. 
The choice among methods of valuation 
rests not on any proof of the correctness 
of any one valuation over another — but 
on questions of logic, usefulness, and 
measurability." 

The year-end and the average-price 
methods have been used as convenient 
methods which are consistent with the 
physical change concepts of economic 
accounting, while the accrual method has 
been popular in farm linn accounting. 
In view of the possible differences 
among methods in studies where in- 
ventory valuations have a considerable 
effect on estimates of total net farm 
income, however, the user of farm in- 
come data might well consider certain 
questions: For the purposes for which 
the data are being used, are inventories 
a legitimate component of farm income.' 
If so, since inventories are in reality 
farm assets, are not other less liquid 
assets just as valid a component of total 
net farm income?" Whether inventories 
are used or not, is a simple average in- 
come sufficient for the use in mind, or is 
some knowledge of the frequency dis- 
tribution of various income classes 
needed? 



4 Johnson, Charles E. Inventory valuation 

— the accountant's Achilles heel. The Ac- 
counting Review 29:15-26. 1954. 

5 See Grove, Ernest W. Farm capital gains 

— a supplement to farm income? Agricultural 
Economics Research 12:37-42. 1960. 



Two groups of users of farm income 
data are usually thought of first — those 
who use income data for policy debate 
and those who use the data for fore- 
casting purposes. For both users it would 
seem that realized net farm income 
would initially be most relevant to their 
purposes. The extent and method of 
valuing farmer-owned assets would, it 
seems, necessarily depend upon careful 
evaluation of the implications for the 
problem at hand of a twice-a-ycar valua- 
tion of these assets. A researcher who 
wishes to adjust for inventory char 
the average 1952 intermountain cattle 
area realized net income of $9,357 would 
need to choose between $10,984, given 
by tlie year-end method, or —$6,893, 
given by the accrual method. In choosing 
one of these figures, some assumptions 
must be made concerning the relevance 
of the prices used in valuation to the 
relationships being .studied and particu- 
larly the implications of inventory valua- 
tion t<< farmer behavior. If no formal 
tests of hypotlv re made at this point, 

the selection of an income figure i 
largely on a judgment based on </ priori 
reasonixi . 

Finally, it should be expected that 
farmer behavior would vary among in- 
come classes and that users of farm 
income data may be interested in a j 
ticular income group rather than an 
average of all groups. Thus far this 
type of information is not readily avail- 
able. 

All of these observatioi rning 

inventory valuation have ssumed that 
appropriate methods of sampling and 
estimating have been employe* 1 to de- 
velop gross revenue and farm expenses. 



ILLINOIS FARMERS ARE GETTING NEW NEIGHBORS 



19 



Illinois Farmers Are Getting New Neighbors 



C. L. FOLSE 



AMONG THE MANY CHANGES 
that have taken place in the rural land- 
scape, one of particular importance is 
that farmers are getting new neighbors 
— nonfarm families. The increase in 
number of nonfarm families living in 
the open country is one of the most 
significant population trends of recent 
times. 

While most of these nonfarm families 
share many experiences with farmers, 
they differ from farm families in many 
ways. To the extent that their occupa- 
tional interests and former residential 
backgrounds and social experiences are 
different, social and cultural values can 
also be expected to be different. Those 
who work with rural people must con- 
sider these differences in planning pro- 
grams involving rural people. 

The rapid shift of nonfarm families 
into the open country is changing the 
homogeneous rural community into more 
heterogeneous units. This change has 
further reduced the former differences 
between rural and urban residents. 
While mass media of communication 
have already brought much of urban 
culture and city ways to farmers, now 
many of their neighbors are urban- 
oriented. 

The changing character and composi- 
tion of the open-country population 
have had marked effects upon the tra- 
ditional town-country community. Busi- 
ness, .schools, and churches and other 
services in the rural community that 
formerly served almost exclusively the 
day-to-day needs of the farmer and his 
family are also experiencing changes. 
Some rural communities are growing, 
and the demands for additional services 
and facilities frequently strain the physi- 
cal and economic resources of the com- 



munity. On the other hand, some 
communities are declining; this requires 
retrenchments and adjustments in serv- 
ices that pose many problems. 

In growing communities demands 
from nonfarm families for new and 
additional facilities and services such 
as sewerage, public utilities, schools, 
churches, and recreational facilities are 
impossible to provide from a limited tax 
base. The older community residents 
frequently are asked to provide these 
facilities by increasing their taxes. The 
newcomer families who need these added 
facilities have limited financial resources 
that are taxable. For example, the prob- 
lems of school expansion have become 
acute and form the focal point of con- 
tention and disagreement. Newcomers 
are usually relatively young families 
with growing children, and they want 
the best possible school facilities for 
their children. On the other hand, older 
long -established community residents 
have passed the stage in the family life 
cycle where there are large numbers of 
school-age children. Hence farmers are 
put in the position of voting increased 
taxes for school construction and sup- 
port, thereby adding to their fixed costs 
of production and increasing the cost- 
price squeeze of recent years. 

Because of these problems it is im- 
portant at this time to describe and 
analyze the changes that have occurred 
in the composition and characteristics of 
the open-country population. This infor- 
mation will provide community leaders 
a factual basis for discussions and plans 
for satisfactorily settling the many per- 
plexing problems that confront them. 

Any cursory examination of gross 
population figures published by the Bu- 
reau of the Census reveals many impor- 



20 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



tant changes. From 1940 to 1950 Illinois 
population increased from 7,897,000 to 
8,712,000 — an increase of 815,000 or 
10.3 percent. 

For purpose of analysis, the total 
population will be broken down as indi- 
cated in the following diagram: 



Total population 



1 



Urban 



Rural 



Rural- farm 



Rural-nonfarm 

Living in Open 

incorporated country 

towns and non farmers 

villages 

of less than 

2,500 

The urban population, including all 
those living in incorporated centers with 

2,500 or more persons, increased 11.7 
percent during the ten years, from 5,- 

809,000 to 6,486,000. The rural popula- 
tion increased from 2,087,000 to 2,225, 
000, or 6.6 percent. It is within the 
rural population that some of the most 
dramatic changes took place. 

In 1920 the Bureau of the Census 
first divided the rural population into 
the rural- farm population, which com- 
prises all persons who live on farms, and 
the rural-nonfarm, which comprises the 
remainder of the rural population. The 
method for determining the residents of 
farms in the 1950 enumeration differed 
somewhat from the method used in the 
1940 and earlier censuses. In 1950, per- 
sons who paid cash rent for their house 
and yard only were classified as rural- 
nonfarm; persons in institutions, summer 
camps, motels, and tourist camps were 
also classified as rural-nonfarm. While 
these changes in definition of rural- farm 



residents transferred some individuals 
from the farm classification in 1940 to 
the nonfarm group in 1950, they were 
not of sufficient magnitude to alter the 
basic trends discussed in this report. 1 

Between 1940 and 1950 the rural- 
farm population declined by 203,000, or 
21 percent. The rural-nonfarm popula- 
tion is among the most heterogeneous in 
occupations and other characteristics of 
the residential groups enumerated in the 
census; it includes residents of incor- 
porated centers with less than 2,500 in- 
habitants, unincorporated places, and 
the open-country population living in the 
fringes of cities. For our purposes the 
rural nonfarm population consists of 
two major groupings: residents of in- 
corporated centers of less than 2.500 and 
the open-country nonfarm population. 
The rural-nonfarm population increa 
dramatically between 1 ( '-K) and 1' 

from 1,119,000 to 1,460,000 an in- 
crease of 341 .<)()(). This incr- f 30.4 
percent was the largest proportional in- 
crease among the three censu ups of 

urban, rural- farm, and rural-nonfarm. 

In the past a majority of th< pie 
living in the open-country areas v. 
farmers while the remaining rural popu- 
lation, the non farmers, were largely n 
dents of the smad towns and villi 
that served as the focal points for the 
town-country community. In the ; 
half-century, the number of inhabitants 
living in the small towns and villa 
has changed very litttle (Table I s ). In 
1900 there were S21 incorporated centers 
under 2.500 population having an aggre- 
gate population of about o07,000. By 
1950 the number of such places had 

1 The forthcoming population figures from 
the 1960 census will not influence the trends 
indicated. The preliminary data show that 
farm population is continuing it> decline, and 
the open-country nonfarm population is in- 
creasing. 



ILLINOIS FARMERS ARE GETTING NEW NEIGHBORS 



21 



Table 1. — Illinois Rural-Nonfarm Population Living 

in Incorporated Centers of Less Than 2,500 

Inhabitants, 1900 to 1950 



Census 
year 


Number 
of places 


Popula- 
tion 


Increase ( + ) or 
decrease ( — ) 


1900 

1910 


821 
.... 922 


606,797 
675,502 
680,740 
651,268 
663,819 
660 , 393 


121,277 ( 26.0%) 

68,705 ( 11.3%) 

5,038 ( 7.5%) 

-29,472 (-4.3%) 

12,551 ( 1.9%) 

-3,426 (-0.5%) 


1920 


940 


1930 

1940 

1950 


956 
932 
912 







grown to 912 and included 660,000 per- 
sons. In 50 years the population in these 
places grew about 50,000 or by 8.8 per- 
cent. During the decade from 1940 to 
1950, the population declined by 3,426 — 
less than 1 percent. Although the num- 
ber of rural incorporated centers fluctu- 
ated from decade to decade over the past 
fifty years, the total incorporated rural 
population remained rather stable. 

The changes in rural population can 
be viewed in another way by combining 
all the people who live in the open- 
country into one group. This would in- 
clude the census category of rural-farm 
population plus that portion of the rural- 
nonfarm population living outside of the 
incorporated centers discussed in the 
preceding paragraph. Unfortunately, 
trends in the number of open-country 
residents cannot be examined before 
1920, when the census first separated the 
farm and nonfarm groups. In 1920 



Table 2. — Illinois Open-Country Population 

Classified by Farm and Nonfarm Residence, 

1920 to 1950 



Census 
year 



Total 
open- 
country 
popula- 
tion 



Classified as: 



Rural-farm 



Open- 
country 
nonfarm 8 



1920 1,400,863 1,090,736(77.9%) 

1930 1,343,659 991,401(73.8%) 

1940 1,423,772 968,103(68.0',') 

1950 1,565,110 765,277(48.9%) 



310,127 (22.1%) 
352,258(26.2%) 
455,669 (32.0%) 
799,833(51.1%) 



a To determine open-country nonfarm, the popula- 
tions of the rural incorporated places in each county 
were added and this total then subtracted from the 
county's reported total rural-nonfarm population. In 
19S0, tin- Bureau of the Census pave 20 rural unin- 
corporated centers that could he identified by name 
the same status as incorporated centers; these aggre- 
gations are, however, lure treated as open-country 
population to make the fijjures comparable with those 
for 1940. 



about eight out of ten open-country resi- 
dents were classified as farm and the 
remainder nonfarm (Table 2). With 
each passing decade since 1920, the 
open-country farm population declined 
numerically as well as in proportions of 
the total open-country population (Fig- 
ure 1). In 1950, farm population repre- 
sented 48.9 percent and the nonfarming 
population 51.1 percent of all open- 
country residents. In the thirty years, 
Illinois farmers became not only a mi- 
nority of the state's total and rural 
population but also a minority of the 
open-country population. 

Farm population decreased in all 
counties between 1940 and 1950. De- 
clines varied from 5.4 percent in Boone 
to 41.4 percent in Alexander county 
(Figure 2). With the exception of 
Macon and Morgan, counties declining 
30 percent or more were concentrated in 
southern and southeastern Illinois. Coun- 
ties with the smallest percentage losses 
were in northeastern and northwestern 
Illinois. Forty-eight counties showed 
losses exceeding 21 percent ■ — the aver- 
age for the entire state. 

The percentage changes in the open- 
country nonfarm population are shown 



100 



z 
o 



3 

O 

Q. 



< 
O 



O 



O 

q: 
uj 



:0PEN-C0UNTRY NON-FARM 




950 



Fig. 1. — How farm proportion of open- 
country population has declined. 



22 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



in Figure 3. Ninety-five counties in- 
creased and only seven lost open-country 
nonfarm residents during this ten-year 
period. Increases varied widely among 
the 95 counties, with gains ranging from 
1.2 percent in Perry to almost 500 per- 
cent in Gallatin county. Gains in open- 
country nonfarm population occurred 
both in counties influenced by the large 
cities and in the most rural counties. 

Thirty-two counties had increases of 
100 percent or more in their open- 
country nonfarm population. Tt is inter- 
esting to note that of the counties show- 
ing heavy gains in open-country nonfarm 
population, only Cook, Du Page, Lake. 
Macon, Madison, Rock Island, and 
Tazewell are within the standard metro- 
politan areas. The remaining 25 counties 
are in the nonmetropolitan are,-: The 



metropolitan counties of Cook, Du Page, 
Kane, Lake, Macon, Madison, Peoria, 
Rock Island, Sangamon, St. Clair, Taze- 
well, Will, and Winnebago accounted for 
236,745, or 68.2 percent of the total 
open-country nonfarm population in- 
crease; and 89 nonmetropolitan counties 
had an aggregate growth of 107,421, or 
31.8 percent. In recent years much has 
been heard about the growth of nonfarm 
population in the fringe areas of the 
largest cities. It is obvious that Illinois 
open-country population grew markedly 
in the fringes of the largest cities but 
that there was also a significant growth 
in the most rural counties of the stale. 
Tt therefore appears that even in the 
most rural and predominantly agricul- 
tural areas more and more people with 
non farming occupations are living in the 



_j 




1940 - 1950 DECREASE 
IN RURAL - FARM 
POPULATION 



UNDER 10 7. 
10-19 9 7 
5^] 20-29 9 7» 



30 7„ AND OVER 



STATE AVERAGE - 2l7„ 



Fig. 2. — 1940-1950 decrease in rural-farm 
population. 




1940-1950 INCREASE 
IN OPEN-COUNTRY 
NONFARM POPULATION 



DECREASE 
I AVERAGE -75 5 7. 



Fig. 3. — 1940-1950 increase in open-country 
nonfarm population. 



ILLINOIS FARMERS ARE GETTING NEW NEIGHBORS 



23 



open-country as neighbors of bona-fide 
farmers. 

A comparison of Figures 2 and 3 
clearly shows that the open-country non- 
farm population grew most rapidly in 
some of the same counties where sub- 
stantial losses occurred in farm popula- 
tion. This is particularly evident in the 
open-countr}' nonfarm population growth 
in Lawrence, Wabash, White, Hamilton, 
Gallatin, Hardin, Marion, and Johnson 
counties, where there were losses of 
more than 30 percent in farm population. 
These data suggest the hypothesis that 
while some farmers may have left agri- 
culture as an occupation between 1940 
and 1950 they continued to live in the 
open country and were counted as non- 
farm residents in 1950. Unfortunately 
this hypothesis cannot be tested from 
available information. However, it seems 
reasonable to suggest that many rural- 
farm families, although no longer em- 
ployed in agriculture, are living on farms 
and are partially responsible for the 
growth and increased occupational heter- 
ogeneity of the open-country nonfarm 
population. 

Another way to compare the relative 
growth of the rural-nonfarm families 
living in the open country is to examine 
the change in ratio of this part of the 
open-country population to the total 
open-country population in 1940 and 
1950. Without exception the percentage 
of the total open-country population 
classified as nonfarm increased in each 
county while the population of farmers 
declined. In 1940, 48 counties had less 
than 15 percent open-country nonfarm 
population and 93 had less than 50 per- 
cent. Ten years later only seven counties 
(Jo Daviess, Brown, Jasper, Ford, Mar- 
shall, Hancock, and Shelby) had less 
than 15 percent and 83 had less than 50 
percent. At the upper end of (he scale, 
Will, Cook, and Lake were the only 



counties in 1940 with more than 70 per- 
cent open-country nonfarm population. 
By 1950 six counties had more than 80 
percent of their open-country population 
classified as nonfarm. 

The increasing number of nonfarm 
families living in the open country that 
was formerly thought of as predomi- 
nantly the residence of farmers gives 
rise to many social and economic prob- 
lems: 

1. The settlement of nonfarm families 
in unincorporated areas is largely un- 
planned. Incorporated centers are fre- 
quently faced with providing additional 
public utility, fire, police, sanitary, and 
transportation facilities for outlying 
areas. Because of higher taxes within 
incorporated centers, open-country non- 
farm residents resist attempts at annexa- 
tion. 

2. The lack of planning orderly de- 
velopment may result in such undesirable 
land use as taking highly productive 
land for residential purposes when less- 
productive land is available. The amount 
of good productive agricultural land is 
limited and cannot be expanded to meet 
future demands for food production. 
Political subdivisions including counties, 
incorporated villages, towns, and cities 
should undertake vigorous efforts to plan 
future development through well-con- 
ceived zoning ordinances. This would 
serve to insure orderly development of 
future incorporations and annexations 
and at the same time preserve the best 
land for agricultural production. 

3. Current institutional services such 
as school, religious, recreational, health, 
medical care, and related services make 
excessive demands upon existing facili- 
ties. The difficulty of providing addi- 
tional facilities with limited tax revenues 
is well illustrated in the present school 
situation. Increased school enrollments 



24 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



have overtaxed existing physical plants 
and created demands for additional 
teachers. Although maximum tax rates 
are imposed, revenue from property 
taxes is inadequate to provide for in- 
creased school services, and local schools 
have to rely more and more on state aid. 
Farmers are faced with increasing tax 
burdens, which add to their cost of pro- 
duction, to support schools for more and 
more children from nonfarm families. 
Most nonfarm families own a limited 
amount of property, consisting of house 
and lot and personal property. 

4. Problems of social adjustments and 
minimizing conflicts between farm and 
open-country nonfarm residents are e 
present. Many local committees find it 
difficult to integrate these groups into 
harmonious social relationships. Basi- 
cally, tensions result from differences in 
values between "older community resi- 
dents" and "newcomers." The differ- 
ences in ages of these groups arc also 
important. 

5. While the agricultural segment of 
the open-country population represents 
owners, renters, tenants, and farm la- 
borers living on commercial, part-time 
residential, and subsistence farms, the 
nonfarm residents include an even 
greater variety of occupational interests 
ranging from the least-skilled laborers to 
highly skilled professionals. Some own 
their own homes, others are renters. The 
houses in which they live vary from 
mansions to the tarpaper shacks of the 
squatter. The open-countryside is rapidly 
taking on the complex characteristics of 
the city. 

On the basis of present trends, it is 
safe to assume that the rural open- 
country population will continue to in- 



crease and the farm population will 
decline or become stabilized. Under these 
conditions open-country areas will as- 
sume more mixed rural-urban character- 
istics. This development should be of 
concern and interest to leaders who work 
with rural groups. As the number and 
variety of social contacts and relation- 
ships among and between farmers and 
non farmers increase, a vastly different 
kind of social structure will develop in 
rural communities. Professional agricul- 
tural leaders may find it profitable to 
capitalize on the leadership and the vari- 
ety of organizations that are developing 
in the open country. 

While the information j ted h< 

should be useful to leaders at various 
levels of responsibility, it is limited and 
general. We need to know more about 
the age, sex. education, marital status, 
religions, occupations, and industrial 
compositional structure of the 0] 
country nonfarm population. Little is 
known of why nonfarm people move 
into the open country, and even less is 
known about the social and economic 
forces that "pull" people into some ar - 
and those that "push" them out of others. 

I.asic information of this kind can aid 
in intelligent planning to insure an or- 
derly development of the countryside. 
The costs of such studies and planning 
may be cheaper in the long run than al- 
lowing the haphazard growth and devel- 
opment that prevailed in the past. Intel- 
ligent planning, moreover, will not only 
insure a desirable kind of community 
life that will be satisfying to the farming 
and non farming inhabitants but will in- 
sure that the best agricultural resources 
are being maintained for future produc- 
tion of food and fiber to feed an increas- 
ing population. 



MOISTURE CONTENT OF CORN AND STORAGE DAMAGE 



25 



Relation Between Moisture Content of Corn Stored 
at Harvest and Subsequent Damage 



MAX R. LANGHAM and R. J. MUTTI 



EAR CORN STORED AT MOIS- 
ture contents that exceed certain levels 
may incur kernel damage which leads to 
price discounts when sold the following" 
spring. Estimating this damage and dis- 
counts is a matter of some concern to 
both farmers and grain handlers. The 
objective of the study reported here was 
to discover how much kernel damage is 
associated with variation in the level of 
moisture at harvest, and to ascertain 
when such damage becomes a relevant 
cost of storage for farmers or grain mer- 
chandising firms. 

Basic data were secured from official 
inspection certificates on corn shipments 
made by two farmer-owned grain firms: 
the Fisher Farmers' Grain and Coal 
Company (for the crop years 1944-45 
through 1957-58) and the Feotone Farm- 



ers' Elevator Association (for the crop 
years 1940-41 and 1942-43 through 1957- 
58). The monthly averages computed 
from these certificates are believed to be 
representative of corn moving off farms 
in the market areas about each firm. 
Figures for individual farms, of course, 
would show a wider range than the fig- 
ures reported here. 

Variations in Damage in Fisher Area 

The percentage of damage averaged 
highest on shipments made in May, July, 
and August (Table 1). The year-to-year 
variability in damage was greatest in 
April and May, and the greatest average 
change in damage from the previous 
month was in April. In the 14 years for 
which records are available, damage in- 
creased from March to April during 



Table 1. — Average Percent of Damage in Corn Shipped From Fisher, Illinois 
(Crop Years 1944-45 Through 1957-58) a 

Year <*£ **~- Decern- Janu- Wh. March April May June Ju]y August Septem- 

1944-45 2.5b 2.5 h 3.6 2.4 2.3 2.5 6.1 3.9 5.0 4.4 C 4.4 C 4.4' 

1945-46 1.2b 1.4 1.5 1.5 1.4 1.4 2.2 2.0 2.3 1.2 1.5 1.4 

1946-47 1.1 1.3 1.1 1.1 1.3 1.0 1.3 1.9 1.9 1.4 1.0 1.1 

1947-48 1.4b 1.5 1.5 1.8 1.8 2.7 5.8 5.8 4.6 4.0 3.4 3.3 

1948-49 1.3 1.3 1.5 1.3 1.4 1.4 1.4 1.2 2.0 2.5 2.6 2.3 

1949-50 3.3 3.7 3.9 3.5 4.3 4.1 4.4 4.0 3.9 3.9 4.0 3.7 

1950-51 2.5b 2.4 2.6 3.0 2.7 3.3 2.7 5.3 2.2 4.8 3.1 4.8 

1951-52 1.6 1.7 2.2 1.6 1.3 2.1 2.2 4.1 2.8 3.2 4.8 3.3 

1952-53 1.6 1.8 1.7 1.9 3.1 2.0 2.0 2.5 1.8 3.2 2.3 2.1 

1953-54 1.4 1.8 1.8 1.9 2.0 1.4 1.6 1.7 1.9 2.4 2.9 2.2 

1954-55 3.6 3.0 3.2 4.3 3.7 4.1 3.5 4.1 4.3 3.8 4.7 3.8 

1955-56 1.7 1.9 2.4 2.1 2.0 2.0 1.7 2.1 2.6 2.0 2.4 2.4 

1956-57 1.7 1.5 1.7 1.9 1.9 1.9 1.5 1.7 1.6 2.9 2.5 2.4 

1957-58 1.0 1.2 1.7 1.8 1.0 2.1 3.6 3.0 3.1« 3.1 c 3.1' 3.1 c 

Sum 25.9 27.0 30.4 30.1 30.8 32.0 40.0 43.3 40.0 42.8 42.7 40.3 

Mean..: 1.85 1.93 2.17 2.15 2.20 2.29 2.86 3.09 2.86 3.06 3.05 2.88 

Standard 

deviation.. .78 .70 .83 .85 .90 .93 1.55 1.39 1.10 1.04 1.10 1.04 

Mean change 

from previous 

month.... .08 .24 -.02 .05 .09 .57 .23 -.23 .20 -.01 -.17 

a Percentages include all types of kernel damage. 

b Voids in the data during these months were handled in the following way: An extrapolation of 0.3 percent under the 
I )ivember, January, February average was made for voids in October and November. This 0.3 percent figure was derived by 
averaging the data during the ten years in which there were no voids in the October and November data. 

Voids in June. July, August, and September were extrapolated 0.2 percent over the March, April, May averages. This 
it. 2 percent was arrived at by averaging the data for the 12 years when there were no voids during these months (1945-46 through 
1956-57). The average during these 12 years for March, April, and May was 2.6 percent and for June, July, August, and Septem 
bei 2 .8 percent. 



26 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



Table 2. — Average Percent of Damage in Corn Shipped From Peotone, Illinois 
(Crop Years 1940-41 Through 1957-58) n 

Year Octo- Novem- Decern- Janu- Ket, Marc „ Aprj , May June Ju|y Aug „ st Sep^em- 

1940-41 2.4'< 2.6 2.6 3.2 2.8 3.4 2.6 3.8 3.7 2.1 3.8 4.2 

19 41-42 Record not available for this year 

1942-43 2.6 1 ' 2.5 3.1 3.3 2.9 3.9 4.0 4.3 9.7 7.2- 4.6 4.5 

1943-44 2.2 1.8 2.8 2.3 3.2 4.9 6.3° 7.6 8.1 3.7 5.6 8.6 

1944-45 2.1 2.4 1.8 2.1 2.0 2.4 5.4 7.0 9.2 7.2* 5.2 8.4' 

1945-46 1.0 1.9 1.6 3.0 2.7 3.2 5.6 7.8 8.0 2.9 6.2 3.0 

1946-47 1.1 1.1 1.6 1.2 1.3 3.3 1.7 1.2 5.8 3.7 5.0' 5.0' 1 

1947-48 1.4 1.5 1.1 1.2 1.0 1.3 6.0 4.7 5.8 5.1 4.5 2.8 

1948-49 1.8 2.2 6.0 4.2 4.8 6.6 10.6 8.7 6.4 9.2 8.4 7.8 

1949-50 2.1 2.3 1.8 2.0 1.5 2.1 2.3 2.6 3.1 3.1 2.9 3.1 

1950-51 2.4 2.4 1.7 2.2 3.3 2.6 5.2 6.7 8.6 5.7 8.7 8.0 

1951-52 1.5 1.7 2.1 2.6 2.6 5.3 7.5 10. 2* 7.6 17.8" 15. 8« 7.7 

1952-53 1.1 2.5 1.6 .9 1.2 1.3 1.7 1.8 3.9 l.K 1.7 2.0 

1953-54 1.1 .9 1.1 1.0 .9 .7 .9 1.2 11 1.0 1 . 2' 1 1 . 2' 1 

1954-55 2.3 2.1 2.2<= 2.4 2.3 2 . 7' 3.1 3.6 3.5 3.4 8.4 3.5 

1955-56 2.0 1.6 1.8 1.5 1.7 1.5 2.1 2.4 2.5 3. 4 2.7 2.9 

1956-57 1.1 1.1 1.8 1.1 1.4 1.2 1.4 2.2 1.8 2.2 2.4 2.4 

1957-58 2.9 1.0 1.3 1.4 1.0 1.6 2.3 3.1 3.9 7.0 5 . 7«* 5 . ?•« 

Sum 31.1 31.6 36.0 35 6 36.6 4X.0 68.7 7X.9 92.7 B6.5 8 1.8 

Mean 1.83 1.86 2.12 2.09 2.15 2.X2 4.04 4 . 6 1 5.4.5 5.09 5.46 4.7^ 

Standard 

deviation.. .60 .57 1.11 .92 1.03 1.58 2.55 2.13 2.6S 3.*7 3.39 10 

Mean change 

from previous 

month.... .03 .26 -.03 .06 .67 1.22 .60 .XI -.36 .37 -.71 

a Percentages include all types of kernel damage. 

h Voids in the data during these months were filled by extrapolating 0.2 j« runt under the Novemtx 
for that year. This 0. 2-percent figure was obtained by averaging tin- data during the 14 j > in October. 

November, and December. 

During these months cither no corn or only one car was shipped. The figure an Interpolation be t ween th- 
ing and the succeeding months. 

d Voids in data during these months were tilled l>y extrapolating 0.2 p er ce n t over i lie June-July .r <-.ir. 

This 0.2-percent figure was arrived at by averaging the data during the 12 year.- there were BO voids in June. July. Am 
and September. 

e Shipments in these three months were less than one-third those in the three months of April. June, and ber and 

their average damage was greatly affected by an exceptionally high damage on a 



eight years. Jn six of these years, when 
the moisture content of corn during the 
early part of the storage period was 
above the 14-year average, increases in 
damage averaged 1.57 percent, compared 
with only 0.25 percent in the oilier two 
years when the moisture content was be- 
low the 14-year average (Table 3). Thus 
subsequent damage has been more fre- 
quent and higher during years when 
moisture content of corn during the early 
storage period is above average. 

From the middle of February to the 
middle of May appears to be the critical 
period with respect to quality deteriora- 
tion in storing high-moisture corn. The 
greatest amount of natural drying of 
ear corn in storage 1 also occurs during 

1 Mutti, R. J., and Langham, Max R. Ef- 
fects of moisture losses on costs of storing 
ear corn. Illinois Agricultural Experiment 
Station Bulletin 653, pages 6-7. 1960. 



March and April. Farmers holding 
corn make maximum gain from natural 
drying during these months. Tl • 
gains are possible because the moisture 
discounts used by grain buyers i to cover 
weight loss, cost of drying, and ri- 
exceed the value of the weight loss in 
drying. In only three years in the Fisher 
area was the average damage high 
enough in any month to incur a price 
discount. 2 

Results of regression analyses for 
Fisher area. Changes in damage be- 
tween two time intervals of the st 
period were computed and correla 
with the average moisture content of the 
corn during the early part of the stor 

'Five percent is the maximum limit of 
damage allowable for corn to grade No. 2. 
Diseounts lor damage by the grain trade are 
not speeified until the damage content reaches 
5 percent, and thereafter are one cent for each 
percent or fraction thereof. 



MOISTURE CONTENT OF CORN AND STORAGE DAMAGE 



27 



Table 3. - — Basic Data for Computing Relationship 

of the Moisture Content of Corn With Subsequent 

Damage Changes, Fisher Area 

Change in 
damage 

from the Average Average Average 
average moisture March- ,. r/ ,f 
nmn for content April a^i 

Crop Nov., Dec, of corn relative Apnl 

year and Jan. for Nov.. humid- ™!f" 

to average Dec, ity, 12:00 te "^e 
for April, and Jan. • CST> ture 

May, and 
June a 

Xi X2 X3 X4 

1944-45 2.2 19.4 62 51.8 

1945-46 7 19.1 54 53.2 

1946-47 5 19.2 65 42.7 

1947-48 3.8 21.1 63 47.9 

1948-49 1 19.2 57 46.0 

1949-50 4 16.1 60 41.2 

1950-51 7 18.3 65 43.1 

1951-52 1.2 19.2 58 46.0 

1952-53 3 16.7 59 45.8 

1953-54 -.1 13.3 56 47.6 

1954-55 5 16.9 56 49.6 

1955-56 16.2 48 44.8 

1956-57 -.1 15.3 60 46.2 

1957-58 1.6 20.5 56 44.6 

Mean 843 17.893 58.500 46.464 

Standard 

deviation... 1.038 2.111 4.420 3.245 

a Computed from data from the records of the 
carlot shipments of corn from the Fisher Farmers' 
Grain and Coal Company. 

b From data reported by the Springfield Weather 
Bureau, Springfield, Illinois. This is the closest station 
reporting the mid-day (CST) relative humidity for the 
years included in the study. 

c From data reported by the Urbana Weather 
Bureau, Urbana, Illinois. 

In addition to the equation presented in the next 
column, the following equation was computed: 

Xi = 1 3.3958 - 2.4642 X 2 + .0799 Xh + .0489 X 3 + .0589 X< 
(1.2569) (0.0362) (0.0437) (0.0577) 
S = .5227 R = .8641 



period. The change in damage was com- 
puted by subtracting the average of the 
damage in November, December, and 
January from the average damage in 
April, May, and June (Table 3). The 
moisture content of the corn during the 
early part of the storage period was de- 
termined by averaging the average No- 
vember, December, and January mois- 
ture contents (Table 3). 

During the first part of the storage 
period — November through January — 
corn normally shows little change in 
moisture content, 3 and the increase in 
damage during these months has usually 
been small. By the end of the second 
part of the storage period — April 

3 Illinois Bulletin 653, previously cited. 



through June — corn in storage has dried 
down to a moisture level where large 
increases in damage are unlikely to oc- 
cur. The increase in damage over the 
previous month in both April and May 
was well above average. In these two 
months the moisture content of the corn 
generally dries to a level at which there 
is no moisture discount (15.5 percent or 
less). Since hardly any increase in dam- 
age would be expected with a moisture 
increase from 13 to 15 percent and a 
sizable damage change would be ex- 
pected in a moisture increase from 22 to 
24 percent, a curvilinear relationship was 
computed. 

The results of the regression analysis 
yielded the following estimating equa- 
tion (standard errors of the regression 
coefficients are in parentheses): 4 

Xi = 20.4241 - 2.6807 X 2 + .0874 X 2 2 

(1.2281) (0.0353) 
Xi = change in damage from the first to the 

second part of the storage period 
Xo = moisture content of corn during the 

first part of storage period 
R = .8350 S = .5713 

The net regression coefficients are sig- 
nificantly different from zero at the 5- 
percent level. 

Figure 1 shows the data plotted about 
the regression line indicated by this 
equation. With the maximum allowable 
damage of 5 percent for No. 2 corn and 
an average 2-percent damage at harvest, 
the 5-percent-damage level would be 
realized when corn testing above 21.2 
percent was stored. 

A second regression in which two 
additional independent variables - — aver- 
age relative humidity and average mean 
temperature — were included gave only 
a slightly higher correlation coefficient 
(R = 0.864), but the regression coeffi- 
cients of these additional variables had a 
very low level of significance (Table 3, 
footnote c). 

4 Data used in the analysis are in Table 3. 



28 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



Id 

Z 
3 

-3 



Ld =j 

o <r 

< 0- 
5 < 

2 o 4 

iL. 

o > 

I- < 

W Z -a 
O < J 

a: t> 

UJ I 

Q- a: 

s| 2 

o ' 







PE0T0NE 




Fig. 1.- 
damage 



14 15 16 17 18 19 20 21 22 23 24 

MOISTURE CONTENT PERCENT, NOVEMBER THROUGH JANUARY 

-How moisture content early in storage period related to percent of 
in areas studied. 



Variations in Damage in Peotone Area 

To obtain damage observations at a 
higher moisture level, data from the 
Peotone area were also analyzed. The 
greatest average damage in grain was 
found for shipments after March (Table 
2). Year-to-year variability was espe- 
cially high during July and August, and 
the greatest average increase from one 
month to the next in damage occurred 
between March and April (1.22 per- 
cent). 

During 11 of 17 years, damage in at 
least one month exceeded 5 percent. 
Damage increased from March to April 
in 15 of the 17 years. The increase in 
damage from March to April averaged 
3.0 percent in the eight years when the 
moisture content of corn from Novem- 
ber through January was above the 
mean, compared with 0.2 percent in the 
nine years when the moisture content 
was below the mean. The range in 
variability about the average damage was 



much greater for the years when the 

moisture content was higher. 

Results of regression analysis for 
Peotone area. The coefficient of corre- 
lation (R = 0.874) is slightly higher for 
the Peotone area than for the Fisher 

area, but the standard error of estimate 
( S = 0.984) is much greater. The cor- 
relation coefficient is slightly higher and 
the standard error somewhat lower when 
data for the Fisher and Peotone ar s 
are combined than for the Peotone area 
data alone. The regression lines and 
estimating equations are shown in 
Figure 1 and in Table 4. 

The regression coefficients (b 12 .3 and 
bi3. 2 ) for the Peotone area are not sig- 
nificant at an acceptable level. The co- 
efficients for the Peotone and Fisher 
data combined are significant at the 10- 
percent and 2-percent levels, respectively. 

If corn has 2-percent damage at har- 
vest, discounts for damage will start 
when the change in damage exceeds 3 



MOISTURE CONTENT OF CORN AND STORAGE DAMAGE 



29 



Table 4. — Basic Data for Computing Relationship 

of the Moisture Content of Corn With Subsequent 

Damage Changes, Peotone Area 1 

Change in 
damage 

from the Average 
average moisture 

p ron for Nov., content 

%. Dec, and of corn 

year Jan. to for Nov., 

average Dec, 

for April, and Jan. 
May, and 
June 

Xl X2 X 2 2 

1940-41 6 20.0 

1941-42 Record not available this year 

1942-43 3.0 19.9 

1943-44 5.0 24.6 

1944-45 5.1 20.4 

1945-46 4.9 23.5 

1946-47 1.6 21.6 

1947-48 4.2 22.4 

1948-49 4.4 24.0 

1949-50 7 17.5 

1950-51 4.7 21.7 

1951-52 6.3 24.8 

1952-53 8 17.4 

1953-54 1 14.6 

1954-55 1.2 19.0 

1955-56 7 17.9 

1956-57 5 16.7 

1957-58 1.9 19.8 

Mean 2.688 20.341 422.020 

Standard deviation .. . 2.027 2.873 116.335 

a Computed from data taken from the records of the 
carlot shipments of corn from the Peotone Farmers' Ele- 
vator Association. 

The estimating equation is: 

Xi = .1026 - .3845X 2 + .0247 X« 2 

(1.2198) (0.0301) 

R = .8743 S = .9841 

The estimating equation obtained by combining these 
data with the data given in Table 3 is: 

Xi = 6.8901 - 1.1180 X2 + .0436X22 

(.6445) (.0165) 

R = .8894 S = .8667 



percent. The horizontal line in Figure 1 
shows that the regression lines cross this 
3-percent line between 21 and 22 percent. 

The regression line for the Peotone 
area has less curvature than that for the 
Fisher area. This difference suggests 
that corn stored at a relatively high level, 
say 23 percent, would be susceptible to 
more damage at Fisher than at Peotone 
(where the mean temperature is slightly 
lower in winter). Since data for Fisher 
do not cover corn stored above the 23- 
percent level, this implication cannot be 
meaningfully tested. 

In 17 years of record at Peotone, 
damage in May exceeded 5 percent in 
six years; the discount for damage was 



3 cents a bushel or less in four of these 
years, and the average gain from natural 
drying was 3.19 5 cents. These data show 
that by holding corn until May damage 
would have exceeded the gain from 
natural drying in only two of the 17 
years. 

The northern location is characterized 
by higher-moisture corn. Farmers in this 
area may therefore need to use more 
care in their storage operations in order 
to minimize damage. Using narrower 
cribs to permit faster drying, locating the 
cribs in open areas, and other practices 
would facilitate maximum natural dry- 
ing with a minimum of damage during 
the storage period. 

Moisture Level at Harvest at Which Sub- 
sequent Variable Storage Costs and 
Damage Costs Are Minimized 

Six situations involving different levels 
of moisture at the end of the storage 
period and different assumed variable 
storage costs 6 are illustrated in Figure 2 
for the Fisher area. The farm price of 
corn at the beginning of the storage 
period was assumed to be $1.00 a bushel. 
The price needed at the termination of 
the storage period was determined by the 
following formula: 

P t = [P b - (X 2 - 15.5) .02* + C 8 + k (17.4241 

rioo 



- 2.6807 X 2 + .0874 X 2 2 )] 



Lioo 



- M t n 
-X 2 J 



+ (M t - 15.5) .02j 

Pt = price of No. 2 yellow corn at termination of 
storage period, dollars per bushel 

Pb = price of No. 2 yellow corn at beginning of 
storage period 

M t = expected moisture content of corn at termi- 
nation of storage period, stated as a per- 
centage 

X 2 = moisture content of corn at beginning of 
storage period 

C 3 = variable costs of storage, dollars per bushel, 
excluding costs or gains associated with 
natural drying 



5 Computed from Table 5 of Bulletin 653, 
previously cited. 

6 Based on data on page IX in Bulletin 653, 
previously cited. 



30 



ILLINOIS AGRICULTURAL ECONOMICS, JANUARY, 1961 



i = use 1 for moisture discount if X 2 is greater 
than 15.5, but if X 2 is 15.5 or less 

j = use 1 for moisture discount if M t is greater 

than 15.5, but if M t is 15.5 or less 
k = use .01 for damage discount if X 2 is greater 
than 21.0, but if X 2 is 21.0 or less. Note 
that the portion of the equation multiplied 
by this dummy variable is equal to the right 
side of the estimating equation for the 
Fisher area minus 3. Generally corn aver- 
ages around 2-percent damage at harvest, 
so the first 3-percent increase in damage in 
stored corn incurs no discount. 

At harvest X 2 and Pb will be known. M t 
and C s may be estimated from data given in 
Illinois Bulletin 653, pages 6-8, 18, and 21. 

Each of the lines in Figure 2 shows 
that the price needed to cover expected 
costs (exclusive of storage space) is low- 
est for corn harvested between 21- and 
22-percent moisture. When corn is har- 
vested at a lower moisture percentage 
than 21, less gain is realized from nat- 
ural drying, and when corn is harvested 
at a higher moisture level than 21, the 
influence of discounts for damage exists. 



Note the relatively small amount of 
additional return per bushel needed to 
cover costs when the moisture content 
at harvest increases from 21 to 25 per- 
cent (in all six examples it was less than 
3 cents a bushel). 

The broken portions of the curves 
(beyond 21.5-percent moisture) repre- 
sent extrapolations beyond the range of 
the observed data at Fisher; they are 
presented because they are believed to 
be indicative of the general direction in 
which the curves move. 

Figure 2 also shows a similar set of 
break-even curves for the Fisher and 
Peotone data combined. These curves all 
show that a minimum price rise is re- 
quired to cover costs when the moisture 
content at the beginning of the Storage 
period is 22 percent. 

Individual farm experiences suggest 
that the break-even curves will increase 




FISHER AREA 



s 



s 



/ 



Mt = 13% 
Cs = 12 cents 



x' 



s 



s 



/ 



Mt = 14 % 

Cs = II cents 



/ 



s 



/ 



/ 



/ 



14% 
5-1/2 cents 



Mt = 15% 
Cs = 5 cents 



/ 



S 



Mt= MOISTURE AT END OF STORAGE PERIOD 
Cs= VARIABLE STORAGE COSTS 



FISHER AND PEOTONE AREAS COMBINED 




21 22 23 24 25 19 20 21 22 

MOISTURE CONTENT PERCENT AT BEGINNING OF STORAGE PERIOD 



23 



24 



25 



Fig. 2. 
(Price 
1 cent 



— Price per bushel needed for ear corn to cover variable storage costs and damage, 
at beginning of period assumed to be $1.00 for No. 2 corn, with moisture discounts of 
for each 0.5 percent above 15.5.) 



MOISTURE CONTENT OF CORN AND STORAGE DAMAGE 



31 



more sharply at the higher moisture 
levels. In this study data limitations have 
prevented the measurement of other 
factors affecting damage, such as 
weather conditions during the storage 
period. 

Summary 

Changes in the percent of damage in 
corn during the storage period are re- 
lated to the moisture content at the 
beginning of the storage period. On the 
average, the storing of high-moisture 
corn will entail some damage discount 
whenever the moisture content is above 
21 to 22 percent. This does not mean 
that a farmer should not take this risk 
of kernel damage. A farmer may be 
faced with an alternative of storing 
corn at moistures higher than 21 to 22 
percent or suffering other unfavorable 
conditions, such as heavier field losses. 
In such a case, he may elect to take this 



risk. A second regression using two 
weather factors (temperature and rela- 
tive humidity) as independent variables 
along with moisture content of the corn 
at beginning of storage failed to yield 
coefficients with an acceptable level of 
significance. These coefficients were 
logically consistent with respect to sign. 
Observation over a longer period of 
time could make such an analysis more 
meaningful. 

Damage has not been a relevant cost 
factor in ear-corn storage when corn 
with less than 21 -percent moisture at 
harvest has been stored. Corn stored be- 
tween 21-percent and 23-percent mois- 
ture usually carries a damage discount, 
which is offset by a gain in natural dry- 
ing if the corn is sold in May; if the 
corn is held past May, the damage dis- 
count and loss in weight add to storage 
costs and can only be recovered through 
a price rise sufficient to meet these costs. 



3M— 1-61— 72458 



CONTRIBUTORS 
TO THIS 
ISSUE 








T. A. HIERONYMUS is Professor of Agri- 
cultural Marketing. His primary fields of 
interest include market development, espe- 
cially for oilseeds and feed grains, and 
analysis of prices of speculative agricul- 
tural commodities. 



N. G. P. KRAUSZ is Professor of Agricul- 
tural Law and a member of the Illinois Bar. 
He teaches courses in agricultural law and 
farm taxation, and in addition to his stud- 
ies of the state tax system, he conducts 
research in estate planning, zoning, and 
other areas where legal aspects play an 
important role. 





C. L FOLSE does teaching and research 
in population problems and demographic 
analysis. He also teaches courses in rural 
community organization and analysis and 
in the structure and function of American 
rural society. He is Professor of Rural 
Sociology. 



W. A. TINSLEY completed work for his 
M.S. degree in agricultural economics at 
Illinois in 1960. His article in this issue is 
based on his thesis. At present he is doing 
further graduate work at the University of 
Minnesota. 




M. R. LANGHAM at the time he prepared 
the article in this issue was research assist- 
ant in the Department of Agricultural Eco- 
nomics. He has recently joined Louisiana 
State University as Assistant Professor of 
Agricultural Economics, specializing in pro- 
duction economics. 




R. J. MUTTI, Professor of Agricultural Mar- 
keting, teaches marketing of farm products 
and distribution of farm supplies. His re- 
search is directed primarily toward analyz- 
ing factors affecting the market for farm 
supplies and the characteristics of the in- 
dustries and firms providing these supplies. 



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